Jabal Omar Development Company, the firm behind a SR19bn real estate scheme at Mecca, has started talks with banks about raising a SR5bn 15-year loan.

The talks involve the five banks, which provided a SR1.35bn bridge loan in October 2010, along with the local Alinma and Al-Bilad banks.

However, the talks have been complicated by a SR3bn loan granted to the company by the Finance Ministry in December 2011. Bankers say the government loan is good for the project, but has upset their negotiating position in trying to get a series of concessions out of the company.

“The government loan has definitely changed the balance of power in negotiations with the company,” says one banker involved in the deal.

During the negotiations to arrange the bridge loan in late 2010, the banks forced Jabal Omar to change the contracting terms on the project. The bridge loan expires in mid-2011, after banks granted an extension to the original maturity date.

“We still have a few things to get agreement from Jabal Omar on before the banks will agree to the long term financing, but after getting SR3bn from the government they are showing less willingness to meet the bank’s demands,” says another banker involved in the deal.

Jabal Omar completed a SR2.6bn rights issue in June 2011 as part of its plans to access several different funding sources to finance its Mecca project. Securing the 15-year loan is the next part of its plans to get the financing in place for the project.

Jabal Omar did not respond to requests to comment.

The developer has invited contractors to submit bids for the second phase of the scheme, which involves the construction of four towers to be operated by the Starwood Hotels and Resorts group. Two of the towers will be used as Westin Hotel, and two are planned to be run as a Sheraton hotel. The submission date for the tender is 3 March.

The developer has also achieved financing for phases three, four and five of the development, and all of the phases are still in the design stage.

The Jabal Omar development will consist of 37 towers when completed. The local Nesma & Partners Construction is currently working on the first phase of the development, which involves the construction of nine towers. In December 2010, Nesma was awarded SR3.4bn construction contract for the work. Nesma replaced the local Saudi Binladin and Saudi Oger firms, who had originally been appointed to build the first phase.